United unions ready to play hardball in merger game

(Crain's) -- Unions at United Airlines wasted no time putting management on notice they expect to be a factor in any merger discussions.

"We are firmly entrenched at the consolidation table," the Union Coalition at United Airlines, which represents 48,900 pilots, flight attendants, mechanics, ramp workers, ticket agents and others, said in a statement Tuesday morning. "If the current management at United expects our cooperation in any consolidation or merger action, they must address our needs."

Delta Air Lines Inc. announced Monday night that it's merging with Northwest Airlines Corp., opening the door for United and Houston-based Continental Airlines Inc. to resume the preliminary discussions they held at the beginning of the year. A person close to Continental said last week that the airline would quickly restart discussions with United if Delta announced a merger.

In a message to United employees Tuesday morning, CEO Glenn Tilton repeated his assertion that the Chicago-based airline "will participate in consolidation when and if it is the right choice." He repeated his frequent call for consolidation, saying "the economic realities of today's marketplace make the case for consolidation more compelling than ever."

Shares of United parent UAL Corp. fell nearly 7% this morning, about the same as Continental. The two were spared the double-digit drops suffered by Delta, Northwest and AMR Corp., American Airlines' parent. Airline stocks wilted as oil prices reached a record $111.76 on Monday and continued to climb Tuesday.

Pardus Capital Management L.P., a hedge fund that owns stakes in Delta and United and began a very public campaign for airline mergers last fall, cheered the Delta-Northwest deal and called for Continental and United to follow suit.

"We believe there is significant momentum behind a similar end-to-end merger of Continental-United in the coming weeks," Karim Samii, president of Pardus, which owns nearly 10% of United shares, said in a statement.

But Mr. Tilton did not address the prospects for a deal with Continental. The Houston carrier said in a statement that in light of the proposed Delta-Northwest deal, "we will review our strategic alternatives and make sure we remain a strong long-term competitor."

Labor, especially pilots, are crucial to any merger. Delta tried ahead of time to get pilots from both unions to agree on seniority lists, the biggest stumbling block in any airline deal. But when the two sides couldn't reach an agreement, Delta negotiated a deal with its own pilots and went ahead with the merger.

United and Continental pilots held informal discussions about six weeks ago, when it appeared a Delta-Northwest announcement was imminent. But a person familiar with the talks described them as preliminary, mainly introducing the negotiating committees from each pilots' union. Both are represented by the Air Line Pilots Assn.

Continental and United are facing the same time pressures as Delta and Northwest to get a deal approved before the Bush administration leaves office, or face delays as a new administration settles in. Analysts have said a deal would have to be offered to regulators no later than May 30 to get approved.

"I'd think it would have to be a matter of weeks," the source said of the time frame for United and Continental to do a deal.

Any merger requires antitrust approval from the U.S. Department of Justice and review by the U.S. Department of Transportation, as well as approval of the companies' shareholders.